By David Z. Morris
July 29, 2018

In the latest sign of the complex fallout from Donald Trump’s trade war, BMW says it will raise the price in China of two SUVs manufactured in South Carolina, potentially dampening demand for the vehicles.

Reuters reports that the price increases will impact the X5 and X6 SUV models, and will be between 4 and 7%. That’s less than the recent 25% increase in Chinese tariffs on imported U.S.-made cars, meaning the tariffs will cut into BMW’s profit margin on the vehicles. BMW had already warned that it wouldn’t be able to “completely absorb” the cost of higher tariffs.

China announced earlier this month that it was raising its tariffs on U.S. vehicles to a whopping 40%, two months after saying it would lower tariffs for imported vehicles as a whole to 15%. That confusing back-and-forth points to the sheer uncertainty unleashed by the president’s tariffs, though China has made some concessions that suggests his tactics are having an effect.

BMW’s plant in Spartanburg, S.C.— a state and city that heavily favored Trump in the 2016 election—has transformed the economy there, but BMW officials have warned that Trump’s trade war could threaten jobs.

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U.S. carmakers have responded in varying ways to the tariff hike. Ford said it would not raise prices on the roughly 80,000 vehicles it exports to China annually. Tesla, a much smaller company working to improve its cashflow, announced that it would raise prices on its cars sold in China by about 20%. Prices of some American-made Mercedes Benz vehicles have also risen, according to Chinese dealers speaking to Reuters.

Some U.S. car companies, including GM and Ford, already manufacture many of the cars they sell in China in that country. If companies believe that China’s barriers to U.S.-produced goods will remain high, they may move more production—along with jobs, skills, and even technology—overseas. Tesla, for instance, announced plans for a factory in Shanghai on the same day news broke of its price increases in China.

That would make Tesla the first foreign manufacturer to open a wholly owned factory in China, rather than a joint venture with a local partner. Those partnerships have been required for foreign companies operating in many sectors in China, and have been targeted by the Trump administration as vectors for intellectual property theft. China recently said it would phase out its joint venture rules, apparently in response to Trump’s aggressive trade policy.

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